Winding Up Application Defence — stop a creditor from closing your company before you have the chance

Under section 459P of the Corporations Act 2001, a creditor can apply to wind up a company in insolvency. The most common basis is a failure to comply with a statutory demand — section 459C creates a presumption of insolvency if the company does not pay or set aside a statutory demand within 21 days. Once the presumption of insolvency arises, the creditor merely has to establish the existence of the debt; the company bears the onus of demonstrating that it is not insolvent if it wants to rebut the presumption. The court will make a winding up order unless the company can show it is solvent, the debt is genuinely disputed, or there is another reason the order should not be made.

Challenging the debt at the winding up hearing is much harder than challenging it through a set-aside application at the statutory demand stage. Once the 21-day period to set aside a statutory demand has passed, the company cannot re-litigate whether the demand was appropriate in the winding up proceedings — it is presumed insolvent. However, if the debt is genuinely disputed or there is a genuine offsetting claim of equivalent value, the company may be able to demonstrate that the plaintiff creditor is not actually a creditor (or is only a partial creditor), which would undermine the standing to apply for winding up. This is a more limited right than the set-aside procedure and requires strong evidence.

Not automatically. Paying the debt after a winding up application is filed satisfies the applicant creditor's claim, but the court retains a discretion to make a winding up order regardless — particularly if there are other creditors who have filed notices of appearance supporting the application, or if there is evidence of wider insolvency. The applicant creditor will usually consent to dismissal of their application once paid in full, and any supporting creditors must then decide whether to proceed. If the company is otherwise solvent, payment of the debt plus costs typically leads to dismissal — but legal advice should be obtained before making payment to ensure it is structured correctly and the application will actually be withdrawn.

Courts have a broad discretion to adjourn winding up applications under section 467 of the Corporations Act 2001. Common grounds include: (1) the company is in the final stages of refinancing and can pay the debt within a specified period; (2) a voluntary administration has been commenced or is imminent; (3) the company is pursuing a genuine dispute with the creditor in other proceedings; (4) there are other creditors' interests that would be better served by a short adjournment. The court will consider whether the adjournment is in the interests of creditors as a whole — not just the company or individual creditors. An adjournment is not granted as a matter of course and requires proper evidence of the underlying reason and the realistic prospect of resolution within the adjournment period.

Yes. If the directors appoint a voluntary administrator while a winding up application is pending, the court can adjourn or stay the winding up application under section 440A of the Corporations Act 2001 to allow the administration to proceed. This gives the company time to develop and present a DOCA proposal to creditors. At the second creditors' meeting, creditors can vote to accept a DOCA that provides a better return than liquidation — and if the DOCA is accepted, the winding up application effectively lapses. This strategy requires that the administration commence promptly and that a credible and financially viable DOCA proposal be available for creditors to consider.

The cost of defending a winding up application depends on whether the matter is contested, the number of court appearances required, and the complexity of the issues. Legal costs for the company typically range from a few thousand dollars for an uncontested adjournment to tens of thousands for a fully contested hearing involving insolvency evidence and cross-examination. If the company successfully defends the application, it may obtain a costs order against the applicant creditor. If the company pays the debt and the application is dismissed, each party usually bears their own costs, though the company is often required to pay the creditor's costs of the application in addition to the debt. Courts can also order security for costs in appropriate cases.